LUMPENPROLETARIAT—California Governor Jerry Brown, a Democrat, announced yesterday that he intends to raise California’s per-hour minimum wage to $15 per hour. Unfortunately, his senate bill timetable stretches this out until 2022, at which time the cost of living may be such that Governor Brown’s minimum wage increases will likely be barely enough to keep up with the cost of living. This is what progressive economists, such as Dr. Sylvia Allegretto (UC Berkeley, Institute for Labor and Employment), propose: annual indexing of the minimum wage to keep up with the increasing cost of living. [1]

And, yet, Republicans are up in arms about minimum wage increases, and the Democrats’ rhetoric holds the interests of business in higher regard than the serious needs of the working classes. As Democrats fail to take leadership in robustly defending a living wage, reluctantly acknowledging the demands of low-wage workers, Republicans don’t hesitate to pull the political center rightward by arguing for stagnating or weakening the minimum wage. Some legislators, such as California Republican Rocky Chávez, liken Brown’s Senate Bill 3 (SB-3) to “slavery” because it forces employers to increase wages.

Governor Brown’s scheme seems to be an ameliorative strategy designed to placate the Fight for $15 activists, whilst not upsetting the business class, the capitalists, too severely by essentially preserving the status quo. Nevertheless, this policy development is definitely a victory for minimum-wage workers and the working class, which has now gained some ground in California where it had previously been complacent or passive.

Messina

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THE PACIFICA EVENING NEWS—[31 MAR 2016] State lawmakers have approved a measure to hike California’s minimum wage to $15 an hour by the year 2022, linking further hikes to the rate of inflation. That would put California’s minimum wage at twice the federal level. It marks a victory for “Fight for 15” activists, and will likely lead to an end to several ballot measures on the issue. Republican lawmakers say it will hurt small businesses and young workers, but Democrats say it’s a step toward bringing people out of poverty and reducing income inequality. Christopher Martinez files this report from Sacramento. [Listen here.]

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[The following article predominantly cites business interest groups, which are opposed to wage increases without a counterbalancing perspective of working class interest groups.] [2]

THE CERES COURIER—[30 MAR 2016] Small businesses leaders and Republican lawmakers were among those who condemned Gov. Jerry Brown’s $15 per hour minimum wage announcement on Monday.

The current minimum wage in California is $10 an hour. Brown wants to raise the hourly rate to $15 by 2022 by increasing it 50 cents annually for two years and then $1 per year for four years. Fast-food workers pushed for the increase, which will bring the minimum wage to the highest rate in the country.

“Today Governor Brown and legislative leadership demonstrated a disturbingly clear disregard for the voice of small businesses in California,” said Tom Scott, executive director of the National Federation of Independent Business/California. “At his press event, Governor Brown claimed he and legislative leadership listened to and considered the small business perspective in crafting this proposal. NFIB has yet to hear from Governor Brown, Senate Pro Tem De Leon, or Speaker Rendon. It is concerning that in the 21st Century we are witnessing dark closed-door deals with no public input or transparency.”

FIB/CA, the largest small business association in California, represents 22,000 dues-paying small business and over 500,000 employees.

Scott said that two months ago Brown opposed a $15 minimum wage on the grounds that it would have devastating fiscal consequences on both the public and private sectors.

“Although the governor appears to have changed his opinion, he cannot change the facts: a reckless 50 percent hike in the minimum wage would have deep negative consequences.”

He predicts businesses will be forced to cut jobs and raise prices on consumers.

Board of Equalization Member George Runner also condemned the plan, saying “Contrary to conventional wisdom, this dramatic wage hike won’t hurt millionaires and billionaires. It will hurt lower and middle class Californians, especially those who live in inner cities and rural areas. Entry-level and low-skilled workers, including young people, will find it more difficult to find jobs, pay for childcare, and eat out. Employers will hire fewer workers and instead turn to automation.

“In a state as economically and culturally diverse as California, it’s a shame that our elected officials don’t realize that a one-size-fits-all approach to combating poverty won’t work in our state. Not every city is San Francisco.”

Democrats and union officials praised the plan, which would raise the pay of about 6.5 million California workers.

THE PACIFICA EVENING NEWS—[30 DEC 2015] The state’s minimum wage will increase Friday, bringing California’s lowest paid workers from nine dollars an hour to ten. The wage hike is the second of two increases scheduled since 2013 and The Ten dollars an hour rate will give California the second highest minimum wage in the country after Washington D.C., affecting the wages of nearly 1/5th of the states work force. But Economists and labor organizers say there is still a lot of work to be done in the fight against income inequality during the upcoming year. Pacifica’s Mike Kohn reports. [Listen here.]

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ECONOMIC POLICY INSTITUTE—[14 JUL 2015] The minimum wage was established in 1938 as part of the Fair Labor Standards Act (FLSA). In addition to prohibiting child labor and mandating the 40-hour workweek, the FLSA established the federal minimum wage to help ensure that all work would be fairly rewarded and that regular employment would provide a decent quality of life. Moreover, regular increases in the minimum wage were meant to ensure that even the lowest-paid workers benefited from broader improvements in wages and living standards.

Yet today, because of decades of infrequent and inadequate adjustment, the federal minimum wage no longer serves as an adequate wage floor. Every year that the minimum wage is left unchanged, rising prices slowly erode its buying power. In 2014, the federal minimum wage of $7.25 was worth nearly 10 percent less than when it was last raised in 2009, after adjusting for inflation. In fact, the real (inflation-adjusted) value of the federal minimum wage in 2014 was 24 percent below its peak value in 1968.

This decline in purchasing power means low-wage workers have to work longer hours just to achieve the standard of living that was considered the bare minimum almost half a century ago. Over that time, the United States has achieved tremendous improvements in labor productivity that could have allowed workers at all pay levels to enjoy a significantly improved quality of life. Instead, because of policymakers’ failure to preserve this basic labor standard, a parent earning the minimum wage today does not earn enough through full-time work to be above the federal poverty line.

In April 2015, Sen. Patty Murray (D-Wash.) and Rep. Robert “Bobby” Scott (D-Va.) introduced the Raise the Wage Act of 2015, a bill that would raise the federal minimum wage in five steps to $12 per hour by 2020. Beginning in 2021, the minimum wage would be “indexed” to median wages so that each year, the minimum wage would automatically be adjusted based upon growth in the median wage. The bill would also gradually increase the subminimum wage for tipped workers (or “tipped minimum wage”), which has been fixed at $2.13 per hour since 1991, until it reaches parity with the regular minimum wage.

This report begins by providing historical context for the current value of the federal minimum wage and the proposed increase to $12 by 2020. It then describes the population of workers likely to receive higher pay under an increase to $12 by 2020, with detailed demographic data that refute a number of common misconceptions about low-wage workers. The report concludes with a discussion of the provisions of the Raise the Wage Act that would index the minimum wage to median wages, and gradually eliminate the subminimum wage for tipped workers.

Key findings include:

A $12 minimum wage in 2020 would undo the erosion in value of the minimum wage that took place largely in the 1980s. It would also reverse the growth in wage inequality between low- and middle-wage workers over the past generation.

Raising the minimum wage to $12 by 2020 would directly or indirectly lift wages for 35.1 million workers—more than one in four U.S. workers.

Over the phase-in period of the increases, affected workers would receive nearly $80 billion in increased wages. Once the increase is fully phased-in, the average affected worker would earn roughly $2,300 more each year than she does today (assuming no change in the number of work hours).

The workers who would receive a pay increase do not fit the stereotypes of low-wage workers.

The average age of affected workers is 36 years old. A larger share of affected workers are age 55 and older (15.3 percent) than are teens (10.7 percent). About two-thirds of affected workers are 25 years old or older.

The majority of affected workers (55.9 percent) are women.

Workers of color would disproportionately be affected, with more than one-third of black and Hispanic workers receiving a raise.

Of workers who would receive a raise, the majority (57.4 percent) work full time, nearly half (45.1 percent) have at least some college experience, and more than a quarter (27.7 percent) have children.

More than one-third (36.5 percent) of single parents who work would receive higher pay, including nearly 40 percent of working single mothers.

The workers who would benefit are, on average, the primary breadwinners for their family, earning more than half (54.3 percent) of their family’s total income.

Indexing the minimum wage to median wages would ensure that low-wage workers share in broad improvements in U.S. living standards, and would prevent future growth in inequality between low- and middle-wage workers.

The minimum wage in context

Since its inception in 1938, the federal minimum wage has been adjusted through legislated increases nine times—from a nominal (non-inflation-adjusted) value of 25 cents per hour in 1938 to the current $7.25, where it has remained since 2009. These increases have been fairly irregular, varying in size and with differing lengths of time between increases. Yet aside from a few very brief deflationary periods in the postwar era, prices have consistently risen year after year. Each year that the minimum wage remains unchanged, its purchasing power slowly erodes until policymakers enact an increase. This haphazard maintenance of the wage floor has meant that low-wage workers of different generations or in different decades have been protected by significantly different wage standards. [See Figures here.]

Figure A shows the nominal and real value of the minimum wage from its inception in 1938 to today, as well as U.S. total economy net productivity indexed to 1968. As the figure shows, in the first increase following the end of World War II, the minimum wage rose rather dramatically in real terms, nearly doubling overnight in 1950, followed by regular increases that kept pace with rising labor productivity until the late 1960s. The minimum wage peaked in inflation-adjusted value in 1968, when it was equal to $9.54 in 2014 dollars. Increases in the 1970s essentially held the value of the minimum wage in place despite higher inflation driven by oil and food price shocks. Yet in the 1980s, as inflation remained elevated, the minimum wage was left to deteriorate to 1950s levels. Subsequent increases in the 1990s and late 2000s were not large enough to undo the erosion that took place in the 1980s. As of 2014, the federal minimum wage was worth 24 percent less than in 1968.

The dashed lines in the figure show that the Raise the Wage Act would restore the lost purchasing power of the federal minimum wage, bringing it to an estimated $10.58 in 2014 dollars. This would equal an 11 percent increase in purchasing power from the 1968 peak.

Such an increase in purchasing power is decidedly modest when compared with growth in the U.S. economy and in workers’ ability to generate income since that time. As explained in Cooper, Schmitt, and Mishel (2015), increases in average labor productivity represent the potential for higher living standards for workers. However, this potential is realized only if productivity gains translate into higher wages. The dark blue line in the figure shows that average labor productivity has more than doubled since the late 1960s, yet pay for workers generally and for low-wage workers in particular has either stagnated or fallen since the 1970s (Bivens et al. 2014). In the case of low-wage workers, hourly pay has declined in real terms since 1979 as a direct result of the erosion of the minimum wage (Bivens et al. 2014).

A higher minimum wage would direct a small portion of overall labor productivity gains into higher living standards for low-wage workers. Productivity in low-wage work may not have grown as substantially since the 1960s as overall productivity; however, low-wage workers today tend to be older (and are therefore likelier to have greater work experience) and significantly more educated than their counterparts in 1968 (Mishel 2014a). To the extent that workers with more experience and greater education typically earn more than their younger and less-educated counterparts, we would expect low-wage workers today to earn more, not less, than what they earned in the previous generation. In this context, a pay increase for America’s lowest-paid workers of 11 percent over the 52-year span from 1968 to 2020 is indeed modest when compared with projected overall productivity growth of 117 percent over the same period.

The minimum wage is also a mechanism for combating inequality. As technological progress and increased productivity raise wages for average- or middle-wage workers, a rising minimum wage ensures that the lowest-paid jobs also benefit from these improvements. This is the essence of the “fairness” implied in the name of the Fair Labor Standards Act, the act that established the minimum wage.

Figure B shows how the federal minimum wage has compared with the wages of typical U.S. workers, using two measures of typical wages. The light blue line shows the value of the federal minimum wage as a percentage of the average hourly earnings of nonsupervisory production workers, a group that comprises roughly 80 percent of U.S. workers and excludes highly paid managers and executives. The dark blue line shows the minimum wage as a percentage of the median wage of all full-time workers.

Figure B

Federal minimum wage as a share of the median wage and of the average wage of typical workers, 1967–2014 and 2015–2020 (projected under Raise the Wage Act)

Both series illustrate how as the minimum wage was left to erode, the gap between pay in middle-class jobs and low-wage jobs expanded considerably. Indeed, the declining value of the federal minimum wage is the key driver of the growth in inequality between low-wage workers and middle-wage workers since the late 1970s (see Zipperer 2015a or Mishel 2014b). In 1968, the federal minimum wage was equal to roughly half the wage of the typical U.S. worker: 53.0 percent of the average hourly earnings of production workers, and 52.1 percent of the median wage of all full-time workers. In 2014, the minimum wage was equal to just over one-third of the wage of the typical worker: 35.2 percent of the average production worker wage, and 37.1 percent of the median wage of all full-time workers.

The dotted lines in the figure show that the Raise the Wage Act would essentially restore the relationship that existed in the late 1960s between the minimum wage and wages of typical workers. A $12 minimum wage in 2020 is projected to equal 54.1 percent of the median full-time wage, and 51.4 percent of the average production worker wage. These projections make the conservative assumption that wages of typical workers will not grow any faster than inflation in the coming years. If, instead, the wages of typical workers were to grow just 0.5 percent per year faster than inflation between 2014 and 2020, a $12 minimum wage in 2020 would equal less than half the median wage.

When set at an adequate level, the minimum wage also ensures that work is a means to a minimally decent quality of life. By establishing a wage floor, the minimum wage prevents unscrupulous employers from reducing wages to destitution levels during periods of economic distress, thereby helping to prevent the exploitation of workers who may have limited job options. Unfortunately, the erosion of the minimum wage has effectively negated this protection, as evidenced in the Great Recession and its aftermath. During and after the recession, millions of previously better-paid workers were forced to take lower-paying jobs. Unable to make ends meet on the wages from these jobs, millions of workers—roughly half of whom work full time—have had to rely on public assistance programs to supplement their inadequate pay (Cooper 2014).

As shown in Figure C, a parent working full time while earning the minimum wage today earns too little to be above the federal poverty line. In contrast, at its high point in 1968, the minimum wage was sufficient to keep a family of three out of poverty. As the dark blue dotted line in the figure shows, the Raise the Wage Act would bring full-time minimum-wage earnings back above the poverty line for a family of three. In fact, when coupled with income from refundable tax credits, a full-time worker at the minimum wage would be lifted above the poverty line for a family of four.

Assembly Labor and Employment Committee hearing for AB 1439 on April 18, 2012

By Sylvia A. Allegretto, PhD
Co-­chair Center on Wage and Employment Dynamics
University of California, Berkeley

Good afternoon. Thank you for this opportunity to speak in partial support of this important bill. I emphasis partial support because I strongly believe the bill does not go far enough. Low wage workers in this state need a long overdue increase in the minimum wage (MW) along with annual indexing to keep it from eroding year after year as prices increase. Let’s review some facts, which are depicted in Figure 1. Solid black is the federal MW. Dotted black is CAs MW and red line is the wage of low wage or 10th percentile workers in CA from 1979-­2011.

This year marks the fifth year that the MW has been at $8.00 and even as inflation has been fairly mild over this period the wage will have eroded in value by about 6.2% to $7.50 by 2013. Perhaps more importantly, the wage received by low wage workers in CA have DECREASED over the last three decades, on average, by 7% not just for the 10th percentile workers show in the Figure but for the entire bottom 30% of workers (1979-2011).

Thus, implementing annual indexing when the MW has been in decline—either a five-­year or a 30-­year decline—is not a good place to start.

It is clear the MW matters given how the two series track. Especially since CA instituted a MW in 1997—it seems more than likely that had the policy not been enacted the pay of our low wage workers would have continued the 1979 to 1997 decline—when wages fell from $8.92 to $7.30 (real $2011)—and the trend most likely would have tracked the 2006 low point in the Federal MW.

Thus, post-­’97, the actual function of CAs MW has been to prevent long and significant declines—like the 18% slide that occurred from 1979-­1997—it has not provided for any real wage gains. For comparison, the wages of CAs higher wage workers those at the 90th percentile have increased about 30% above and beyond inflation over the last three decades—thus exacerbating income inequality. All the economic gains have been flowing disproportionally to those at the top while leaving everyone else behind.

New research by the Center for Economic & Policy Research in DC has shown that today’s MW workers are more likely to be better educated then they were in 1980. My research shows that this is also the case in CA. Yes, MW workers are disproportionally young but 43% are at least 35 years old, one in six has an Associate’s or BA degree. Furthermore, MW workers are concentrated in a few industries: such as retail trade, low end health care services and leisure &
hospitality (such as restaurant workers)—these industries account for 56% of low wage workers. Importantly, these are the exact same industries that are growing in the state. As we move more and more toward a service based economy which employs a large share of low wage workers the state will be hard pressed to sustain a growing, thriving middle class without improving the quality of those jobs—including better pay.

As for the much talked about disemployment effects caused by an increase in the MW—a whole new body of research of which I’m a part of shows that MW increase over the last two decades have not caused employment losses—not even for likely affected groups such as teenagers and/or workers in the restaurant industry. Research includes San Francisco’s $10.24 MW which is indexed annually.

Those who suffered through econ 101 or perhaps common sense may leave one thinking this outcome contradicts economic theory: an increase in the price of something (labor) leads to a decrease in demand (workers). But, the MWs passed in the last two decades have simply not been in the competitive realm, as workers, especially those in low wage labor markets, have no bargaining power and employers set wages artificially low. As prices and profits have increased firms are paying less for low wage workers today then they did three decades ago.

Moreover, the new empirical research also highlights positive effects of MW increases such as:

• A strong wage effect—so it matters to the economic wellbeing of workers
• Reduced turnover & quit rates—thus reduces the high cost of TO and filling vacant positions
• Better worker morale and productivity and attracts better works

Let me stress the need for a boost along with indexing. This year marks five years of an $8.00 MW in California—thus even a .50 increase would only get the wage back to the level it was in 2008—because even with very mild inflation it has eroded that much.

Given the facts, it is simply not good policy to implement indexing without first implementing a boost to the MW. For the employers who have benefited greatly from these very low wages, it is never a good time for a MW increase.

But, the timing for an increase in California’s minimum wage could not be better with our economy essentially on a long, slow recovery where many workers are being forced to take lower-­paying jobs due to a historically weak labor market with unemployment rate in double digits for over three years now. Based on my research and on research by economists such as those at the Federal Reserve Bank of Chicago (2008) an increase in California’s minimum wage will not cost jobs, but will help struggling families of minimum wage workers make ends meet and will strengthen the economy by providing a crucial spending precisely when the economy needs it the most.

California’s low wage workers need an increase in the MW along with indexation to protest them in the future from constantly eroding buying power.

Thank you.

Sylvia A. Allegretto

[2] Ceres (Calif.) Courier Editor, Jeff Benziger leads his apparently anti-wage increase column by citing minimum wage increase opponent Tom Scott, executive director of the National Federation of Independent Business/California (NFIB), without explaining who this group is, why it deserves to be viewed as credible, or providing a link to further background information. Benziger describes the NFIB as “the largest small business association in California”, which “represents 22,000 dues-paying small business and over 500,000 employees.” This gives the NFIB a pro-labour veneer when it is actually a pro-business, pro-capitalist, organisation.

What the apparently politically conservative Jeff Benziger doesn’t reveal is that the National Federation of Independent Business is a conservative lobbying organization with headquarters in Nashville, Tennessee and offices in Washington, D.C. and in all 50 state capitals. NFIB’s lobbying efforts are focused on the impact of current and proposed legislation on businesses (primarily small businesses) and professional practices at all levels of government but primarily at the federal and state levels. Its political action committee is called Save America’s Free Enterprise Trust. The federation claims to be nonpartisan but historically has contributed more to business-friendly Republican candidates for office. NFIB claims a membership base of about 350,000.

Notably, Tom Scott characterises an increase in the minimum wage, by 2022, as “reckless”, even though it may very well represent the minimum wage increase necessary for minimum wage workers to maintain their current, inadequate, standard of living. For Tom Scott, the NFIB, and other pro-capitalists, capitalist profits are more important than insuring that working class families are able to make ends meet and provide for their families.

Board of Equalization member George Runner is also cited as having “condemned the plan” to raise the minimum wage. But no specifics are given to justify Runner’s claim that a minimum wage increase “will hurt lower and middle class Californians, especially those who live in inner cities and rural areas.” Readers are merely expected to be fearful of the wrath of vindictive capitalist employers who can punish and abuse workers with impunity, “cut jobs and raise prices on consumers”. No where is there a sense that workers have any rights, much less the right to a living wage.

Benziger, like most of the mainstream and corporate press, promotes a pro-business perspective, whilst keeping opposing viewpoints from Jerry Brown’s Democratic administration, unions, labour groups, and such away from their audiences, or at least kept to an absolute minimum.